CBO Says: Have a Nice Day

I mean, nothing says "have a nice day" like an issue brief from the Congressional Budget Office on the prospects for a U.S. sovereign debt crisis. On the potential for inflating away the problem, the brief says,

On balance, the increase in tax revenues resulting from higher inflation would be more than offset by higher payments for benefit programs and higher interest payments as the outstanding debt rolled over and ongoing deficits required the issuance of more debt.

If most of our problem consisted of legacy debt, inflation would be the answer. However, since most of our problem is future unfunded liabilities, which increase with inflation, the inflation solution does not work quite so well.

Read the whole issue brief. There is no way that excerpts can do it justice.

Comments and Sharing

But if I petition the government and ask my representatives to cut spending I am a Tea Party Racist.

True story - I am a registered Democrat (NYC go figure) - I was speaking to a staffer for a member of congress and gingerly suggested that maybe you know maybe congress could think about making some cuts in spending.... The staffer responded that I was a racist and sounded like a tea partier. I was then asked if I read the Turner Diaries. Can't make this stuff up.

I only mentioned this anecdote because I think this is the prevailing attitude of the democratic party right now - shut up and be ruled, we will do as we please - any dissent is hearasy.

Anyone who says this is a serious issue is shouted down and marginalized.

Disclaimer - I am not a Tea Party person
Double Disclaimer - as this website has been discovered by talking point trolls - I hated GWB and am not a neoconservative.

Leaving aside all of the other problems with inflating the debt away, if it is going to perform it's goal, then the government needs to somehow extend the average maturity of it's explicit debts a great deal- right now the average maturity under 5 years. This would trap the bondholders in their losing positions long enough that you could rob them nearly completely. As for the unfunded liabilities coming up, the government already controls the definition of "inflation" in this regard.

I keep reading this notion that the Fed (the gov't) won't devalue the currency (inflate) as a way of stiffing bondholders et-al. because inflation would just drive up interest rates so would be self-defeating.

(B) The Fed/gov't controls a fiat currency. When they inflate they drive away foreign bond purchasers, but then the Fed buys the bonds with fiat money, at which point they don't really have to pay much attention to interest rates since whatever the Treasury pays to the Fed in interest the Fed just returns to the Treasury as "profits." Interest rates are a problem for the private sector, and Obama and his cronies don't much care what happens to the private sector other than their own financial businesses.

(C) Much of what the Fed/Treasury/Congress does is intended to help their pals (e.g., Goldman Sachs), not the taxpayer. To the extent that private debts can be inflated away, and private balance sheets restored (in nominal, which is to say, legal terms) by inflation, then the Fed/Treasury may well favor inflation regardless of whether it does the public fisc any good. Inflation would sure help Fannie and Freddie.

(D) At any time the government can abolish or alter COLAs and so-forth which supposedly make inflationary (devaluation) policy pointless by increasing government spending along with inflation. The government may decide it is politically easiest to cut entitlement spending by devaluing the currency while holding down COLAs.

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